By Justin Carbonneau (@jjcarbonneau) They say a picture is worth a thousand words. The pictures and charts outlined below may actually be worth much more: 30 million unemployed. $7 trillion on the Fed’s balance sheet. Just how much the Amazons, Googles and Large Cap technology stocks have delivered over other areas of the market like value. A 250% increase and a 50% decrease in Internet search trends and behavioral shifts. 40 years of falling interest… Read More
In a recent article for USA Today, investment expert, author and columnist Ken Fisher wrote, “Hey Federal Reserve Board: Pay attention!” adding that the central bank’s plan to cut short-term interest rates represents “demand-side thinking” and ignores the “bigger basics.” Instead, Fisher argues, the Fed should “dump all those bonds you idiotically bought under your ill-conceived ‘quantitative di-easing (QE) programs. Get real.” Fisher contends that the Fed should be concerned with the inverted yield curve… Read More
Although the global purchase of negative-yielding bonds—which has reached nearly $17 trillion–may seem like a losing proposition, a recent Bloomberg article outlines three ways that these securities can be traded for a profit: Carry and Roll, which involved borrowing over a short time period and buying bonds with longer maturities where yields are typically higher. The “carry” is the coupon of the purchased bond and the “roll” is the capital appreciation that can be earned… Read More
A recent article in Bloomberg discusses the outlook for the federal deficit and potential repercussions with respect to interest rates. The article reports that the Congressional Budget Office’s release of projections late last month reflected a scenario of “steadily rising deficits,” attributable to the following: Growth in government health care spending due to the aging of the population and also because of higher medical costs. A rise in interest rates that will force the government… Read More
In an article for Barron’s last month, Grant’s Interest Rate Observer founder and editor James Grant offers insights regarding the repercussions of an ultra-low interest rate environment. Grant quips, “You can as easily imagine a five-pawed St. Bernard or a suitable candidate for public office as you can the situation of a lender paying a borrower for the privilege of extending a loan.” He points out that such an interest rate environment means that saving… Read More
In an article for The Wall Street Journal, co-authors Stanley Druckenmiller (chairman and CEO of Duquesne Family Office LLC) and former Federal Reserve Board member Kevin Warsh argue that the Fed should suspend its “double-barreled blitz of higher interest rates and tighten liquidity.” “The Fed created quantitative easing as a novel crisis-response tool a decade ago,” the article explains. “It bought assets from the public and stocked them away for safekeeping. Market participants understood the… Read More
A recent Vanguard blog addresses the issue of the Fed’s ongoing rate hike program and how it will affect investors. Here are highlights: “Higher yields on cash are good news for savers”—the article notes that since the Fed started raising rates in December 2015, investors have moved more than $60 billion into money market funds, and those inflows could rise with further rate hikes. Mixed outlook for bonds—”Bond investors might cringe at our outlook for… Read More
A recent article in Advisor Perspectives addresses a number of issues related to rising interest rates and how investors can prepare for them. Here are some highlights: Yield curve outlook— The article argues that the potential for higher long-term interest rates is “still significantly greater than many forecasters would have you believe” due to the winding down of quantitative easing in Europe, inflation and rising federal budget deficits. The fixed income investor, the article says,… Read More
According to a recent article in The Wall Street Journal, the Fed’s rate-hike program is “upending real-estate investment trusts and other stocks with juicy dividend yields that had been thriving in a lower interest-rate environment.” While investors tend to purchase shares of real-estate firms and other stocks like utilities for “safe, bond-like returns,” the article reports, as the Fed implements further tightening, “the payouts on U.S. government bonds are rising and forcing investors to consider… Read More
In a recent Barron’s article, financial analyst Mark Hulbert wrote that many of the investment advisors he monitors on a regular basis are concerned that high interest rates will entice investors to move their dollars from equities to bonds. He cites the so-called “Great Rotation” theory that emerged in 2011 and predicted a huge shift from bond funds into equity fund as “investors came to appreciate the near certainty that interest rates would eventually rise… Read More